Articles: January - May 2009

May 2009 - Buying at Mortgagee Sale - Not everyone gets a bargain.

by Julie Olds
Associate

I’ve just completed a search on www.realestate.co.nz for real estate listings with the word “mortgagee” in the title. There are 327 nationally, 2 of which are in the Wairarapa. On further inspection one of the Wairarapa listings was “mortgagee sale pending” rather than an actual sale by the mortgagee.

It’s certainly topical, and there are property investors looking for that bargain, the opportunity to make the most out of some unfortunate owner’s circumstances. Although mortgagee sales are not yet common in the Wairarapa, if you do find yourself at a mortgagee auction you need to be aware of the risks that you take on as a purchaser.

What is a mortgagee sale?

A mortgagee sale arises when a property owner defaults on their payments under any loan which is secured by way of mortgage over their property. After a series of notices the mortgagee (usually the owner’s bank) attempts to exercise their power of sale. It is normal for a mortgagee sale to be conducted by auction or by tender.

What are the traps/pitfalls?

The solicitors acting for the mortgagee will have prepared a fairly strict standard set of terms and conditions which naturally give the greatest protection to their client. Many of the usual protections to a buyer will have been deleted including:

     
  1. Vacant possession – you may have to remove the previous owner from the property if they are still in possession on the settlement date.
  2. Warranties on the structure – the mortgagee will not warrant that the building (or any part of it) complies with the Building Code.
  3. The ability to requisition the title – if there is a problem with it you have to sort it out yourself
  4. Chattels – none of the chattels will be included, eg. the stove, carpets, curtains – the owner could take these out prior to settlement. If they are still present on settlement you may need to search the Personal Properties Security Register to ensure that a finance company doesn’t hold them as security for a previous owner's loans.
  5. Insurance on confirmation – you need to make sure the property is insured from the time the agreement becomes unconditional – in the case of an auction this is when the hammer falls.
  6. There is no warranty that the property will be habitable on settlement – an unhappy owner may cause a lot of damage.
  7. The mortgagee may cancel an agreement to purchase without warning to you if you do not settle on the agreed time.

What can you do to protect yourself?

Always first contact your solicitor and let them know that you’re considering purchasing a property at a mortgagee sale. Among other things they can search the title for you, note whether there are any charges against any chattels and remind you that the first phone call you need to make before completing purchase is to your insurer. You need to do your homework first – you should obtain a Land Information Memorandum (LIM) from the Council; if you would like a builder’s report you will need to arrange inspection prior to the auction, but bear in mind the owners may not be too welcoming!

This article is intended as a guide only, please contact a solicitor as your specific circumstances will require tailored advice. If you would like further advice regarding the purchase of a property please give me or one of the other team members at Logan Gold Walsh a call.

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